On Option Theta by Lawrence D. Cavanagh
ARTICLE SYNOPSIS ...On Option Theta by Lawrence D. Cavanagh
Options traders use various measurements to calculate an option's risk, the
calculations of which are denoted by Greek letters. One example is theta, which
is the measure of how much an option's price decreases for each day that passes.
A nyone who has ever traded options quickly becomes aware that if all things remain equal, then over time, the
price (or premium) of the option declines. Theta (q) is the Greek letter used to mark the decay of an option premium
over time. This price decay is nonlinear (that is, it changes over time), and most of the tim...